Warren BuffetWarren Edward Buffett was born in Omaha, Nebraska to Howard, a politician/businessman and Leila Buffett, a homemaker on August 30, 1930. He is the second oldest of three children and the only son. Buffet began his education at Rose Hill Elementary School in Omaha. A career change with Warren's father in 1942, being elected into a four year term as one of the U. S House of Representatives caused the Buffett's to have to move to Fredericksburg, Virginia to be closer to his new job. Warren continued his elementary education and attended Alice Deal Junior High school and later graduated from Woodrow High School. As a child Warren wasn't a normal kid, he was able to calculate numbers off the top of his head. He took interests in the type of work his father was in and wanted to make money at an early age. At the age of six years old, Buffett purchased a 6-pack of Coca-Cola from his grandfather's grocery store for twenty five cents, went from door to door and resold each of the bottles for a nickel, pocketing a five cent profit. At eleven years old Warren purchased three shares of Cities Service, at $38 per share for both himself and his sister Doris. Shortly after buying the stock, it fell to just over $27 per share. A frightened but resilient Warren held his shares until they rebounded to $40. He promptly sold them a mistake he would soon come to regret. Cities Service shot up to $200. The experience taught him one of the basic lessons of investing: Patience is a virtue. While in high school Warren carried out many successful money making ideas such as: delivering newspaper, selling weekly magazines, Coca-Cola, chewing gum, golf balls, stamps all door to door and detailing cars. He also worked in his grandfather's grocery store. In 1944, Warren filed an income tax return, and took a $35 deduction for the use of his bicycle and watch on his paper route. Warren Buffett is the CEO and chairman of Berkshire Hathaway. Berkshire Hathaway began as a textile...

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...Case 1 |
WarrenBuffet |
Group 7 |
According to the case, there are stock price changes for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement. Also, the bid price for PacifiCorp is $9.4 billion. After knowing this announcement, Berkshire Hathaway’s Class A shares price went up and make them gained in market value $2.17 billion. In Berkshire and other investors’ point of view, After Berkshire takeover PacifiCorp, it might have a good development and future so that the stock price went up. Berkshire believed that PacifiCorp can have good earning returns in the future. The intrinsic value is more valuable than its cost so they are willing to pay $9.4 billion to acquire.
Moreover, based on the multiples for comparable regulated utilities, we can see that in exhibit 10, the range of possible enterprise values for PacifiCorp is form $6.252 billion to $9.289 billion. And the range of possible market value of equity is $4.277 billion to $5.904 billion. In this case, Berkshire used $9.4 billion to acquire the electric utility PacifiCorp. This price is out of the range neither of possible enterprise value nor of possible market value. So, a very obvious question is raised here----why Berkshire was willing to purchase PacifiCorp at such high price? In the article, Buffett mentioned “intrinsic value is all important and is the only logical way to evaluate the relative attractiveness of investment and business.”...

...Warren E. Buffett, 2005
Executive Summary:
Warren E. Buffett is one of the world's richest men with a net worth estimated at $44 billion by Forbes magazine. Buffett is known for his patient approach to investing and making long-term investments in steady, predictable industries that generate positive cash flow. It was announced that MidAmerican would purchase the regulated electric utility PacifiCorp from Scottish Power, for $5.1 billion in cash and $4.3 billion in liabilities and preferred stock. This would be the second largest purchase of his career. After the announcement, stock prices for both PacifiCorp and Berkshire Hathaway increased, by 2.4% and 6.28% respectfully, which suggests market approval for the acquisition of PacifiCorp.
Problem:
From the increase in stock price, we can assume that investors believe that the deal was a fair price and that acquiring PacifiCorp was a good investment to benefit Berkshire Hathaway. In fact the market added more value enhancement to Scottish Power than Berkshire, which leads investors to consider why Scottish Power gained more benefit than Berkshire Hathaway and if Berkshire Hathaway paid a reasonable price.
Analysis:
From Exhibit A, on the following page, we can analyze the range of values for PacifiCorp. From this we can see that the only significant various between median and mean value arises in EBIT, which indicates outliers for revenues, operating expenses, or depreciation....

...﻿Suggested Questions for Warren Buffett Case
1. What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement? Specifically, what does the $2.55 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp?
PacifiCorp had a very large amount of investors/stockholders as indicated in the footnote, which contributed to the large increase in Berkshire’s market value of equity.
2. Based on the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? What questions might you have about this range?
Already firmly placed in the energy sector of the economy, they moved into manufacturing as well as the service industry. For a man who claims diversification isn’t the answer, it certainly seems as those he has diversified his investment strategy across multiple platforms of the economy.
- Also in correspondence with the “assortment of smaller businesses generating about $3 billion in revenues.
3. Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value? As an alternative, the instructor could suggest that students perform a simple discounted cash-flow (DCF) analysis.
I feel as though the amount of capital actually expended was worth the investment risk. The intrinsic value of PacifiCorp is really that the company can now invest in a whole new sector – the energy...

...Warren E. Buffet
Analysis:
1 What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement? Specifically, what does the $2.17 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacificCorp?
2 Based on the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? (I am looking for numbers, but they are given in the case).
3 Assess Berkshire’s bid for PacifiCorp. Does it make sense given your answer to #2? Hint: How was has Berkshire Hathaway performed in the aggregate? What about some of its specific investments such as MidAmerican Energy Holdings? Hint: Computations will help to support your answers here
4. How has Berkshire Hathaway performed in the aggregate?
According to information divulged in the Berkshire Hathaway 2012 Annual Meeting Notes, in general, all of Berkshire’s companies, with the exception of the residential construction companies had shown good earnings growth in the first quarter of 2011. Each of Berkshire’s five largest non-insurance companies Burlington Northern Santa FE (BNSF), Iscar, Lubrizol, Marmon Group and MidAmerican Energy delivered record operating earnings in 2011 of more than $9 billion in aggregate. Unless the economy weakens in 2012, Buffett expects each of the “fabulous five” to once again set a record, with...

...Questions for: WarrenBuffet 2005
1. What is the possible meaning of changes in the stock price of Scottish Power plc and Berkshire Hathaway on the day of the acquisition announcement? Specifically, what does the $2.17 billion gain in the value of Berkshire Hathaway say about the intrinsic value of PacifiCorp?
The increase in the stock price of Scottish Power plc and Berkshire Hathaway indicate a market approval for the acquisition and created value for both buyers and sellers.
2. Based on the multiples of comparable regulated utilities, what is the range of possible values for PacifiCorp?
We find the range of possible values for PacifiCorp in Exhibit 10.
i. Revenue median of $6.252 Billion, mean of $6.584 Billion.
ii. EBIT median of $8.775 Billion, mean of $9.289 Billion.
iii. EBITDA median of $9.023 Billion, mean of $9.076 Billion.
iv. Net Income median of $7.596 Billion, mean of $7.553 Billion.
v. EPS median of $4.277 Billion, and a mean of $4.308 Billion.
vi. Book value median of $5.904 Billion, mean of $5.678 Billion.
3. Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value?
(If you know what a DCF is, you might try to estimate it.)
4. How well has Berkshire Hathaway performed? What about its investment in MidAmerican Energy...

...Warren E. Buffett, 2005
Warren E. Buffet, the chairperson and chief executive officer (CEO) of Berkshire Hathaway Inc., announced that MidAmerican Energy Holdings Company wanted to acquire the electric utility PacificCorp. The acquisition of this company had renewed public interest in its sponsor, even though his net worth is about $44 billion and also he and other insiders controlled 41.8% of Berkshire. “I will keep well over 99% of my net worth in Berkshire” was one of his main fundaments for the year 2005.By that time Warren held and MBA from Columbia University and credited his mentor, Professor Benjamin Graham with developing the philosophy of value-based investing that had guided him to his success.
This company he wanted to acquire is called Berkshire Hathaway was incorporated as Berkshire Cotton Manufacturing, manufactured in 1989 and it eventually grew to become one of New England’s biggest textile producers, accounting for 25% of the United States cotton textile production.One previous year from Warren Buffet’s plans, in 2004, Berkshire Hathaway’s annual report described the form as a “holding company owning subsidiaries engaged in a number of diverse business activities” and it’s portfolio included: insurance, apparel building producers, finance and financial products, flight services, retail, grocery distribution and carpet and floor coverings.
When Warren was a coauthor of...

...About Leader
Warren Edward Buffett, who was often called the “Oracle of Omaha” or the “Sage of Omaha”, born August, 30th 1930 in Omaha, Nebraska. In his early age, Mr. Buffet started working in his grandfather’s grocery store. He purchased his first stock at age 11, which he ended up making a five-dollar profit on this investment. At age 14, he started working as a newspaper delivery boy. He got his bachelor’s degree from The University of Nebraska. Mr. Buffett graduated from Columbia Business School and earned M.S. in Economics in 1951. Shortly after completing college, Warren founded the Buffet partnership.
WarrenBuffet married in 1951 and had three children. In 2008, Forbes magazine had ranked Mr. Buffett as the richest person in the world. Despite his immense wealth, he is noted for his value investing and his personal frugality. Even as a billionaire, he still lives in five bedroom stucco house in Omaha which he purchased for $31,500 in 1958. Buffett is also a notable philanthropist, having pledged to give away 85 percent of his fortune to the Gates Foundation.
In 1999, Buffett was named as the top money manager of the twentieth century in a survey by Carson Group. In 2007, he was listed among Time’s 100 Most Influential People in the world.
He is known for his "value investing" and is the most famous disciple of value investing inventor Benjamin Graham. A simple, honest man...

...Case 1: Warren E. Buffet, 2005
What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement? Specifically, what does the $2.55 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp?
The possible changes in stock price for Berkshire Hathaway and Scottish Power plc on the day of acquisition announcement indicates the market approval for the acquisition and for both sellers value was created. Berkshire’s Class A shares price closed up 2.4% while Scottish Power’s shares jumped 6.28% and the S&amp;P closed at 0.02% showing an overall approval.
After the acquisition of Scottish Power plc class A shares reached $85,000.00, S&amp;P 500 grew from 96 -1194. Buffet believed in his investment philosophy which created value to any business he obtained. Buffet created eight philosophies, these philosophies are;
1. Economic reality, not accounting reality.
2. The cost of the lost opportunity.
3. Value creation: time is money.
4. Measure performance by gain intrinsic value, not accounting profit.
5. Risk and discount rates.
6. Believed that investors should hold wide-range portfolio of stocks in order to shed company-specific risk.
7. Investing behavior should be driven by information. Information awareness is important for investing.
8. Alignment of agents and owners,...